FINANCEHEDGE FUNDS This hedge fund manager is up 27% in a market down 30% BY JEREMY KAHN March 26, 2020 3:30 PM EST Massive coronavirus relief bill is worth more than $2 trillion It includes aid for individuals, small businesses and large companies. Loaded: 100.00% Roy Niederhoffer loves a good crisis. The 54-year-old hedge fund manager’s firm, R.G. Niederhoffer Capital, which manages about $350 million in assets currently, often does best when the stock market is at its worst. His Manhattan-based firm was one of the industry’s top performers during the past decade’s global financial crisis, and it is once again leading many of its peers in the market turmoil caused by the coronavirus pandemic. So far, his company’s flagship diversified fund, which invests in stocks, bonds, commodities, and currencies, is up 27% for the year, after fees, at a time when the overall U.S. stock market is down 30%. Its second fund, which trades only currencies and bonds, is up almost 18% after fees. “In a crisis, investors are behaving instinctually in ways that are not always optimal for trading,” Niederhoffer says, speaking from his ski house in Vermont, where he’s fled to escape the coronavirus pandemic. Founded in 1993, the firm missed out on finding a way to play the 1997 Asian financial crisis, but it has managed to make money in most of the big market swoons since then. Niederhoffer studied computational neuroscience at Harvard University, and his fund’s investment strategies are based around spotting situations in which human cognitive and behavioral biases—things like loss aversion or anchoring to previous high prices—are likely to cause other investors to make poor decisions. The fund uses computer-driven algorithms to search for those situations. Usually, these bias-driven market disparities are short-lived. The firm’s trades are typically in place for only a few hours or a few days, Niederhoffer says, not the weeks or months some of the other multi-asset hedge funds prefer. The fund’s performance often tracks market volatility, he says. And the past month has been one of the most volatile on record: The VIX index, which tracks investor expectations of the volatility over the next 30 days hit an all time high, at 82.69, on March 16. Of course, that same correlation with volatility also means that Niederhoffer’s fund is coming off a very weak 2019, in which it lost almost 30%. The fund has also seen its assets under management shrink considerably in the years since the global financial crisis, as trend-following and momentum strategies triumphed in the long bull run. “2019 was one of the least volatile years on record,” Niederhoffer says, noting that average daily volatility for U.S. stocks was just 0.4%, compared with 4% over the past month. Still, R.G. Niederhoffer’s recent gains are all the more remarkable because they come in conditions that have humbled many other hedge funds. Some of the best-known computer-driven funds have turned in their worst two months in years. In some cases, these funds have still outperformed the overall market. But, for firms that touted their algorithms’ abilities to generate positive returns for investors in almost any market condition, March has been a reckoning. D. E. Shaw, one of the earliest computer-driven hedge funds, has seen its exclusive Valence fund, which has more than $6 billion under management, lose more than 9% in the first part of the month, according to a report in the Financial Times. Renaissance Technologies, the hedge fund known for complex quantitative strategies, founded by mathematician and billionaire investor Jim Simons, also reportedly suffered declines in March, after enduring a 7% decline in February. Ray Dalio, the billionaire investor who founded Bridgewater Associates, one of the world’s largest hedge funds, has also said that his flagship fund blundered during the pandemic-induced market crash. The fund suffered double-digit declines in the first half of the month, according to Reuters. Bridgewater is an example of a hedge fund that did well during the 2008 financial crisis but has been unable to navigate the massive declines across many different asset classes that has characterized the current market turmoil. Part of the issue is that many hedge funds, including Bridgewater, use a trading strategy known as “risk parity,” which tries to balance the risk across a portfolio by finding baskets of uncorrelated assets. These funds then often use large amounts of borrowed money—leverage—to increase returns across that basket.
He did better than his brother Victor who blew up his hedge fund in the Asian Crisis by betting big on the Thai baht.
He gave a TV interview about what he is doing in January or Febraury so he had the herd in the bag, basically making him a Guru-scheme. Dont admire him too much for this as he as also sunken the boat often enough before.
I believe the one's who really outperformed this year are the tail-risk funds. We're talking 1000s of %. https://www.nytimes.com/reuters/2020/03/18/business/18reuters-health-coronavirus-tailrisk.html